Incentive Stock Options

An incentive stock option (ISO) is a type of employee stock option that when exercised is taxed at the capital gains rate, and not ordinary tax income rates.

ISOs are usually provided as an encouragement so employees can stay for a long time and add to the development and growth of the company. They can work as a compensation increase the current salary, or works as a reward for employees instead of a traditional salary raise. These can also be used to attract new hires, mostly in case the company isn’t able to afford to pay the competitive base salaries.

Even though ISOs have more favorable tax treatment compared to the non-qualified stock options (NSOs), they also need the holder to take much more risks by holding onto the stock for a much longer time period for them to be able to get a better tax treatment.

Also, many other additional requirements must be met in order to qualify as an ISO.

If you want more information about ISO, or wish to track your stock options of your company, visit Eqvista. Our captable application can help you track the ISOs of your company. Access our software online or contact us to know more!